Money
Medium of exchange, unit of account and store of value.
What are the functions of money?
There are twelve of these.
How many regional banks are there?
The reserve ratio, the discount rate, and open market operations.
What are the tools of monetary policy?
Ability to produce a good at a lower opportunity cost.
What is comparative advantage?
The discount rate.
What is the interest rate the Fed charges banks?
People trust it, and the government says it does.
Why does money have value?
It does not go to Congress for money and directors serve terms that are longer than presidential terms.
How is the Federal Reserve so independent?
Using excess reserves to make loans.
How does the banking system create money?
Lower prices, more variety, more innovation, and better international relations.
What are the benefits of trade?
The difference between what consumers are willing to pay and what they actually pay. It is the area below the demand curve and above the price.
What is consumer surplus?
You use a $10 bill to buy lunch.
What is using money as a medium of exchange?
Regulates banks, monitors economic conditions, conducts monetary policy, and provides cash during emergencies.
What does the Federal Reserve do?
Raising the reserve ratio, raising the discount rate, and selling bonds.
What is tight monetary policy?
A tax on imported goods.
What is a tariff?
A tariff that is put on goods and services that are not produced in the nation.
What is a revenue tariff?
The opportunity cost of holding cash.
What is the interest rate?
It makes decisions about monetary policy.
What does the Federal Open Market Committee (FOMC) do?
Lower the interest rate to cause investment and consumption to go up and shift AD to the right.
What is the goal of easy monetary policy?
Protect national security.
What is a reason to restrict trade?
Type of policy the Fed conducts during a recession.
What is easy monetary policy?
To make transactions and store wealth.
Why do people demand money?
It is hard to hold them accountable for back decisions.
Why is the independence of the Fed a weakness?
Monetary policy is more effective against inflation than it is against a recession.
What is a weakness of monetary policy (cyclical asymmetry?
Consumer surplus is destroyed.
What is an impact of restricting trade?
Higher prices, less innovation, less responsive to consumers, lost consumer surplus, and weaker international relations.
What are the consequences of restricting trade?